Indian Farmer Agitation 2020 - An opinion

 

Agitation by Some Indian Farmers, 2020

The crux of the agitation is against Modi’s government’s three new agricultural reforms. The first gives the farmers right to sell anywhere, including in the APMC mandi (more about that later). The second removed all stock holding limits; it means a farmer can store as much and as long as he wants, of any produce. And third, it allowed contract farming, giving the farmer the right to sell his produce even in anticipation of the harvest. To ensure that the contracts are enforceable, a process was laid out.

Right to Sell Anywhere Act

When India got independence, it found that the small farmers were being exploited by usurious money lenders and landowners. So the Govt introduced a control mechanism. It introduced the Agricultural Marketing Produce Committee (APMC system), whereby every farmer would sell in a specified mandi (market yard) in their area, and an auction process would be followed to get the farmer a fair price. An ideal process was designed on paper to ensure this. Middlemen were appointed whose job was to get the farmer the best price by identifying the right buyer. Some fees and taxes were deducted out of the sale proceeds.

As they say, the way to hell is paved with good intentions. Very soon, the management committees of the mandi were controlled by the rich and powerful farmers/politicians. The middlemen formed a cartel and would ensure the hapless farmer, who had no choice but to sell his perishable goods, got a lower price. Note, most farmers don't have warehouses / financial power / risk taking capacity or cold storage facilities. You can see, in the link here, a short 10 minutes movie, based on a true story, that so poignantly captures the plight of these poor marginal farmers at the mandi - brings tears to the eyes - https://youtu.be/U0IDup33qZw 

Enter another player in this sordid drama. The Govt of India had to purchase grains to ensure a buffer stock, so that there is never a famine in India, as it used to happen during British and early independence periods. This is done through the Food Corporation of India (FCI). So every year, the Govt. announces a minimum support price (MSP) at which the rice and wheat would be purchased. Thanks to political compulsions, the governments have gone on increasing the MSP, so much so that it is much higher than the global prices. With controls in place, it doesn't take long to attract more distortions. The FCI staff are in cahoots with the mandi leaders to get more money out of FCI through overweight bills, wrong quality declaration, etc.

Most of the rice and wheat bought by FCI is from Punjab. See the chart below.

About 70% of Punjab’s wheat output and about 85% for rice is procured by government agencies; Hence, almost all the marketable surplus is procured at MSP. Contrast this with the fact that for a far larger agrarian state, UP, just around 10% of its wheat and 24% of its rice are procured at MSP. UP produces double the wheat Punjab does. So, while mandi prices are typically 20-50% below the MSP for most crops, the Punjab and Haryana farmer is almost completely insulated from any market-risk. Many middlemen/politicians have grown financially fat in this environment. 

Further, the environment got screwed as guaranteed higher MSP, subsidized fertilizer, free power and free water ensured growth of water guzzling rice crop and total irresponsibility of the farmers. E.g., they would leave the water extraction pump the whole night as they had to neither pay for the power nor the water. The bigger farmers started overexploiting the underground water, resulting in the water table going really low. Productivity and cost of production has suffered. The mandis’ taxed each sale, so the state governments got big revenue, especially from large FCI purchases and of course, the middlemen earned heftily. The poor farmer suffered.

With the Punjab farmer so well pampered, vested interest have grown fat and strong against any change. Moreover, the state is having less productivity over time. Since 2005, Punjab’s agri-GDP grew at just 1.9% versus India’s 3.5%. Punjab had been, once a point of time, the leader in the green revolution. This overdependence on just wheat and rice, that too sold at MSP, has perhaps made the Punjabi farmers complacent.

No Stock Holding Limit Act

The other legacy distortion was that the government had the power to put stock holding limits to prevent hoarding. The intention was to prevent profiteering in the event of famine, war and other shortage inducing calamities. Hence, anticipating an impending shortage of say, onions in the market, govt. could suddenly declare the levels of the onion produce that the farmer/trader can hold. So one can overnight become a violator of the law if one is stocking a larger volume of a produce and that is suddenly declared a contraband item.

As a result of this arbitrary power of the government, no corporate or other investor would invest in improving the farm facilities like building cold storage, warehouses, ensure better supply chains etc. With no investments coming in and the average land holding becoming smaller and smaller (with each generation, family landholding gets divided between the siblings), Indian farming is sub-optimal resulting in poor production and poor returns. Added to this, the convoluted mandi system meant that the farmers' back was already breaking.

Allowing Contract Farming Act

With the third act, the farmers can now sell even before they sow. This gives them significant flexibility and transfers the risk, of price fluctuations, to the contractors. The farmers may even be given better seeds and fertilizers since the contractors will benefit from better output. The agitators say this will bring corporate exploitation to agriculture. The government is willing to explore ways to ensure that the farmer gets the promised price, etc. But the agitators want the law to be rescinded. Their demand is equivalent to throwing the baby with the bath water.

In Conclusion

Since decades many committees have been recommending improvements in agriculture and all parties, except the communists, have called for giving freedom to the farmers to sell anywhere.

These 3 laws has rocked the boat of the comfortable middlemen who were earning big money and exploiting the poor farmers. In fact they now fear that their boats will sink. Most of them are in just two states - Punjab & Haryana. So there is a lot of commission and mandi taxes at stake for these parasites. A question is why the agitation is limited mostly to Punjab and Haryana farmers. How come most of the other states’ farmers are not agitating.

The agitating so called farmers, have raised the bogey that Modi's govt wants to hand over the farmers to the evil corporates and eventually Govt. will get rid of MSP. The tragedy is that the poor farmers are beholden to these middlemen rich farmer mafia as the former often needs loans for even survival (e.g., when rains fail and crops die, they need money desperately). The Stockholm syndrome ensures that the exploited farmers feel beholden to their exploiters. The big farmer has tremendous political clout in the rural areas. So the small farmer remains subdued and unable to openly support Modi's laws. Moreover, he is typically illiterate or poorly educated so he cannot even envision a national market where he can sell to anyone anywhere. Therefore, we have a vociferous minority of rich farmer / middlemen mafia making huge noise and blocking highways and pretending that they represent the full farmer community. And the exploited small farmers either don't understand the long term benefits of the reforms and/or are scared to voice their support for it. Even if national level market is something that may not happen, for now, due to lack of internet, etc. and widespread digital illiteracy, the very fact that farmers can sell outside a mandated mandi surely gives them tremendous flexibility and freedom.